The State Bank of Vietnam (SBV) is collecting opinions for the draft Circular on amendments and supplements to a number of articles of Circular No. 43/2016/ TT-NHNN of the Governor of SBV regulating consumer lending of the financial companies. This is considered a new move to control risks in consumer lending.
The draft circular specifies two forms of disbursement for consumer loans of financial companies, including indirect and direct disbursement.
The first form is disbursement through beneficiaries. The finance company disburses in cash to the beneficiary (the supplier of goods or services) or transfers the disbursement amount into the beneficiary’s payment account on the basis of goods and services. The case has been provided to consumers for consumption and as agreed in consumer lending contracts.
The second is direct disbursement to borrowers. Specifically, the financial company disburses by cash to borrowers or transfers disbursements into the customers’ payment accounts as agreed in consumer lending contracts.
SBV affirmed that this provision aims to separate consumer lending activities disbursed through beneficiaries and consumer loans to directly borrow from customers, creating a basis for controlling consumer lending of direct disbursement to borrowers.
SBV also said that based on the actual situation of consumer lending of financial companies in Vietnam, lending directly to borrowers had high risks and it was difficult to control the purpose of using loans.
Therefore, in order to ensure sustainable, healthy and efficient consumer loans disbursed directly to borrowers, they are directed to customers who have borrowed from financial companies and have good repayment history.
On that basis, the draft Circular stipulating that financial companies can only disburse directly to borrowers according to the provisions of Point b, Clause 1, Article 4a of this Circular, for customers who have borrowed from financial companies. Therefore, it is assessed that there is a good debt repayment schedule according to the internal regulations of the financial company and there is no bad debt according to the classification results of the Vietnam National Credit Information centre until the latest time calculated from the time of signing a consumer loan contract.
The draft Circular also states that the total outstanding loans for consumer loans disbursed directly to borrowers under the provisions of Point b, Clause 1, Article 4a of this Circular shall not exceed 30 percent of the total consumer credit debt balance of the financial company.
Thus, with this draft, consumer lending activities in financial companies will be more strictly controlled, the form of cash lending will also be limited.
Many analysts believe that the introduction of these new regulations is necessary to target credit quality and form a framework to control risks for financial companies.
Because this is a type of unsecured loans, fast procedures and no need to prove the purpose of borrowing, it is easy to develop outstanding loans, but the risks are high and difficult to control the purpose of using loans.
Dr Nguyen Tri Hieu, a financial and banking expert, affirmed that the amendment of the Circular on consumer lending was good. In the draft, there were many progressive, feasible and suitable points to the actual situation.
From the perspective of the purpose of revising the Circular, new points in this draft mean to limit cash disbursement to reduce risks for credit institutions and financial companies while also limiting the use of cash in the economy. This provision assists in credit risk management throughout the territory and throughout the credit lending system.
According to Vietcombank Securities, with this draft, SBV issued a clear message that the operator was in the process of repelling shadow banking but not so that the financial companies can loosen their credit risk management.
Financial companies must comply with the banking system’s safety regulations to ensure long-term growth.
However, analysts also said that with this draft, the operator should consider further when limiting direct disbursement to customers.
Dr Nguyen Tri Hieu analysed, in an economy, GDP was positively impacted by the consumer index. If consumer lending was developed, it would support the development of the economy. Therefore, if lending was limited, cash disbursement would reduce consumer credit. This expert cited, in fact, there were some consumer needs of people who prefer disbursing in cash such as borrowing to pay hospital fees.
If borrowing at a financial company but the financial company itself is controlled by 30 percent of cash disbursement, it cannot be disbursed, customers will have to borrow shadow banking to pay the costs.
Therefore, the limited disbursement on cash will not support solving “shadow banking” if there is a ceiling of 30 percent control. Therefore, some consumer needs have to give customers the option to use. They can use credit cards, bank cards or cash. And that is the customer’s choice.
“Although the draft provides points to limit risks and control the use purpose of customers when entering the market economy, it is recommended to let credit institutions adjust and decide by themselves as they directly bear the risk if not considering the demand and repayment capacity of customers “, TS. Nguyen Tri Hieu affirmed.
A representative of a financial company said that most of the financial companies still mainly disbursed through bank accounts or to the sellers. Besides, there was also a solution to disburse via e-wallet like Momo. Therefore, the issue of limiting disbursement by cash according to the draft Circular could be overcome. However, he also said that if he wanted to develop new customers, especially customers who did not have formal transactions through licensed credit institutions, or did not have their own account information, this provision would inconsequential. This was a shortcoming because this customer segment currently occupied a large market share.
Dr Can Van Luc, a financial and banking expert, also stated that the direct disbursement regulations that the draft proposed was just a situation measure. In the long term, authorities should let the market decide, consumer finance companies decide on their own “risk” as well as the law of supply and demand. But for the time being, there are some orientation and control measures to contribute to the healthy development of consumer lending market.
